Michigan Localities Plan to Sell $28 Million of Debt Next Week

Michelle Kaske

August 9, 2013 — 1:44 PM EDT

Michigan issuers led by a school district west of Detroit plan to sell $28 million of debt next week, after at least three municipalities in the state put off deals following the Motor City’s historic bankruptcy.

Ypsilanti Community Schools is set to borrow $18 million on Aug. 14 to refinance notes, data compiled by Bloomberg show. Scott Menzel, Ypsilanti’s superintendent, says he’s ready to “test the market,” though the district may pull the deal if interest rates are too high, he said.

“Time is of the essence and so we have to proceed,” Menzel said. He declined to specify at what interest-rate level the deal might need to be postponed.

Michigan Finance Authority will issue the debt on behalf of Ypsilanti, which is about a half-hour drive from Detroit, Menzel said. The debt will be repaid through revenue from a state school-aid program. The district will serve almost 4,200 students in the 2014 school year, Menzel said.

Standard & Poor’s today boosted its outlook on the district to stable from negative, with a grade one step above junk. Terry Stanton, spokesman for Treasurer Andy Dillon, didn’t immediately return a phone message or e-mail seeking comment about the sale.

Borrowers Postpone

Saginaw County this week joined Genesee County and Battle Creek among Michigan localities that have pushed off debt sales since Detroit filed for bankruptcy protection on July 18.

The additional yield that investors demand to buy 10-year Michigan debt rather than top-rated munis has doubled since the bankruptcy filing, Bloomberg data show. Today’s yield spread of 0.53 percentage point compares with a 0.25 percentage point difference the day before Detroit filed.

Michigan plans to sell about $10 million of transportation-refunding debt through competitive bid Aug. 13. The bonds will be repaid with motor-fuel taxes, according to sale documents. Moody’s Investors Service rates the deal Aa2, third-highest.

Myron Frierson, director of the Department of Transportation’s finance and administration bureau, didn’t immediately return a phone call or e-mail.